OIL GRAFT FUELS THE INSURGENCY, IRAQ AND U.S. SAY

By ROBERT F. WORTH and JAMES GLANZ; Robert F. Worth reported from Baghdad for this article, and James Glanz from New York.

Published: February 5, 2006

Iraqi and American officials say they are seeing a troubling pattern of government corruption enabling the flow of oil money and other funds to the insurgency and threatening to undermine Iraq's struggling economy.

In Iraq, which depends almost exclusively on oil for its revenues, the officials say that any diversion of money to an insurgency that is killing its citizens and tearing apart its infrastructure adds a new and menacing element to the challenge of holding the country together.

In one example, a sitting member of the Iraqi National Assembly has been indicted in the theft of millions of dollars meant for protecting a critical oil pipeline against attacks and is suspected of funneling some of that money to the insurgency, said Radhi Hamza al-Radhi, the chairman of Iraq's Commission on Public Integrity. The indictment has not been made public.

The charges against the Sunni lawmaker, Meshaan al-Juburi, lend credence to the suspicions of Iraqi officials that the insurgency is profiting from Iraq's oil riches.

In another incident, the director of a major oil storage plant near Kirkuk was arrested Saturday, with other employees and several local police officials, and charged with helping to orchestrate a mortar attack on the plant on Thursday, a Northern Oil Company employee said. The attack resulted in devastating pipeline fires and a shutdown of all oil operations in the area, said the employee, who was granted anonymity because he was not authorized to speak publicly about the matter.

Ali Allawi, Iraq's finance minister, estimated that insurgents reap 40 percent to 50 percent of all oil-smuggling profits in the country. Offering an example of how illicit oil products are kept flowing on the black market, he said that the insurgency had infiltrated senior management positions at the major northern refinery in Baiji and routinely terrorized truck drivers there. This allows the insurgents and their confederates to tap the pipeline, empty the trucks and sell the oil or gas themselves.

''It's gone beyond Nigeria levels now where it really threatens national security,'' Mr. Allawi said of the oil industry. ''The insurgents are involved at all levels.''

American officials here echo that view. ''It's clear that corruption funds the insurgency, so there you have a very real threat to the new state,'' said an American official who is involved in anticorruption efforts but refused to be identified to preserve his ability to work with Iraqi officials. ''Corruption really has the potential of undercutting the growth potential here.''

An example of how the insurgents terrorize oil truck drivers occurred last month, as a 60-truck convoy of fuel tankers from Baiji that was intended to alleviate fuel shortages in Baghdad was attacked by insurgents with grenades and machine guns despite the heavy presence of Iraqi security forces. In some cases Iraqi guards on the Syrian border have been paid off to let stolen shipments through, and the oil is then sold on the black market, Mr. Radhi said.

Senior officials in Iraq's Oil Ministry have been repeatedly cited in the Iraqi press as complaining about what they call an ''oil smuggling mafia'' that not only siphons profits from the oil industry but also is said to control the allocation of administrative posts in the ministry.

The former oil minister, Ibrahim Bahr al-Ulum, told the London-based newspaper Al Hayat late last year that ''oil and fuel smuggling networks have grown into a dangerous mafia threatening the lives of those in charge of fighting corruption,'' according to a translation by the BBC.

Mr. Ulum said in an interview with the television network Iraqiya that raids on ''smuggling dens'' in Baghdad had netted forged documents and tanker trucks.

The indictment charges that Mr. Juburi, who is now believed to be hiding in Syria, stole money intended to hire and equip thousands of guards in 2004 and 2005 to protect an oil pipeline running between Baiji and the northern city of Kirkuk, Mr. Radhi said. Iraqi officials also suspect, but have not proved, that Mr. Juburi funneled some of the money he was given to protect the pipeline to the insurgents who were attacking it.

An Iraqi Army battalion commander Mr. Juburi hired was arrested recently and accused of organizing insurgent attacks on the pipeline, said a high-ranking Iraqi official who is close to the investigation. The official spoke on the condition of anonymity because he was not authorized to speak about the indictment. It is not clear whether Mr. Juburi knew that the commander was helping plan the attacks, the official said.

Frequent insurgent attacks on the pipeline have been one reason Iraqi oil exports have plummeted over the past year. The mortar attack on Thursday that led to the arrests of oil company officials and police officials was described by Northern Oil company employees as one of the most damaging in years.

The battalion commander hired by Mr. Juburi was identified as Ali Ahmed al-Wazir, commander of the second battalion of the first brigade of the Special Infrastructure Brigades, based in the Wadi Zareitoun district, said the high-ranking Iraqi official close to the investigation. Mr. Juburi fled Iraq just before a warrant was issued for his arrest in late December, Mr. Radhi said. Mr. Juburi's son, Yazen Meshaan al-Juburi, has also been charged in the case and is believed to have fled with him.